Bonds and annuities as retirement investment

There are a number of retirement investments available for those looking for smart ways to invest in their future. On the whole, it would be best to not invest in private companies as the risks with not everything being disclosed. This article talks about two of the best retirement investment options available today. Bonds A bond is equivalent to a loan taken from you by the government or a company, wherein it agrees to repay your loan in a certain amount of time and pays you interest for the loan in the meantime. The rate of interest is fixed when the bond is given, and it remains the same for as long as the bond lasts. They are normally traded in units of $1,000, which is called par. Independent credit rating companies usually assess the credit risk associated with a bond. The market value of this retirement investment option changes based on the rate of interest and the market rate when the bond was valued. If the interest rate today is higher than that of the interest rate fixed for the bond when it was issued, the market value of the bond will be less than $1,000. The biggest advantage of a bond is that if it is held until it matures, one can be assured of the repayment of the principal. The safest bonds in the world with almost no credit risk are the treasury bonds given by the country’s government. Annuities An annuity is a signed agreement between an insurance company and the insured. Here, the policyholder invests in the company, and the company assures a fixed or variable return on the investment by making payments to the policyholder at fixed intervals. An annuity can be put together to resemble a bond, where there is an addition to the principal rate at a rate previously fixed. It can also be structured as an equity investment where the amount and rate of return are not assured. Annuities have quite a few advantages:

  • The principal amount cannot be taxed while it grows.
  • There is no cap for the size of the annuity you want to buy. When the annuity is distributed, the principal amount will not be taxed. Only the growth would be taxed at the current rate, which means the net income would increase for every distribution.
  • Buyers can decide on the kind of investment they want to fix on and how they want their distributions to be. Distributions can be either for a fixed period of time or for a lifetime.
  • It can also include survivor benefits

There are some cons for this retirement investment option that also need to be considered:

  • If you choose to withdraw your principal earlier than the agreed upon time, there will be penalties and taxes, along with ten percent surrender charges.
  • The annual fees are also quite high. It is best not to opt for annuities from a tax-sheltered account as retirement investment unless you want to have a certain income after you retire.

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